The Innovation Game

Banks are facing up to the challenges of the digital age. But legacy systems remain a hindrance to innovation. How are banks addressing this challenge to deliver innovation at the speed that customers expect? These issues, and more, are addressed in a whitepaper we commissioned with Finextra: “The Innovation Game: Escaping legacy with new technology.” 

The research is based on insightful interviews with CIOs, CTOs and heads of digital and innovation at banks across Europe. I encourage you to read the full report. If you’d also like an overview, I’ve summarised the key discussion points below.  

Overcoming the legacy challenge 

With challenger banks on the rise and open banking changing the playing field, how long can the established players maintain their current position? Being able to innovate quickly is essential to long-term success. 

Today’s tech giants are built on open ecosystems – platforms that encourage collaboration and the sharing of applications that add value to the core proposition. Banks in contrast have been built on closed, internalised systems. 

The evolution of cloud, platform-as-a-service, open APIs and low code are now presenting banks with an opportunity to escape the status quo and collaborate more freely with partners who can bring innovation from outside the bank.  

Ripping and replacing legacy systems simply isn’t an option for most banks today. The risks associated with wholesale change are too high. A platform-based approach can allow banks to accommodate modern development techniques and speed of deployment alongside the slower pace involved in maintaining and updating legacy systems. A mix of legacy and agile technology is likely to prevail as banks continue their migration strategies. 

Speed versus safety 

The tensions involved in delivering innovation alongside stability are heightened when the banks’ core legacy systems need to play an integral role in moving to a digital strategy.  

While banks recognize the need for innovation, at the same time, maintaining business as usual for customers is paramount.  Most banks agree on the importance of adopting a more evolutionary approach, making changes incrementally to avoid the risks associated with wholesale migrations.  

One of the biggest challenges highlighted is taking proof-of-concepts and pilots from the sandbox to full production in a safe, but timely way. 

Typically the closer an external partner gets to the core system the more control the bank likes to retain so as not to compromise the security of, and confidence in, the robustness of the underlying technology.  

Delivering transformation 

Platformification is considered an increasingly viable way to address the limitations of legacy – using cloud-based systems, services and APIs to build new applications and tools outside of the legacy systems. Instead of having an army of internal developers in-house, this approach allows banks to grant external developers access to the bank infrastructure through open APIs, enabling them to provide innovation around specific areas of expertise. 

Banks are becoming more comfortable with deployments in the cloud and the use of APIs. Of course, it remains essential for them to mitigate and manage any risks around security and data privacy, but moving to the cloud can deliver huge cost savings in hardware and also reduce concerns over security. As data grows exponentially, the cloud gives greater flexibility to store and manipulate data, as well as the ability to access and organize it in a standardised way. This in turn opens up possibilities for banks to more easily apply artificial intelligence and machine learning related technologies to the data in order to deliver valuable insights to clients. 

Another exciting development is the increasing use of low code tools that reduce the amount of coding required to develop new applications. This opens up opportunities for people without a high degree of technical knowledge to create new applications, products or services – all within a controlled environment.  

The human touch

Success in an open banking world is not just dependent on technology. The culture of the organization and the banks’ willingness to change business processes and adopt a design thinking culture that’s centred on customer requirements is fundamental. A mental shift is needed, with banks becoming more open and transparent with their systems and infrastructure – and encouraging staff across the bank to think differently about the contribution they can make in delivering innovation and improved customer service in a more dynamic, fast-changing environment.  

Read the full report here. We’ll be discussing some of the key themes raised at our Finastra Universe event in London today.